Brendan Burgess
Founder
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- 52,406
From the [broken link removed] for 2009
Fixed Rate Mortgages breakage fees
The Ombudsman received a significant number of complaints in mid 2009 about the size of the
breakage fee where a person wanted to switch from a fixed rate to a variable or other rate mortgage.
In some instances the amounts varied between ¤20,000 and ¤45,000 where only six months of a
mortgage had elapsed. In deciding on each case the Ombudsman considered whether the fee and how
it was made up were disclosed to the customer when the mortgage was taken out. He also considered
whether the fee was properly charged in line with the terms and conditions of the contract and
whether the fee was calculated correctly.
Each complaint was considered on its merits and many were not upheld as the fee was calculated
correctly and in line with contractual provisions. In deciding on the cases the Ombudsman stated that
the cost of breaking the fixed rate agreement is determined by the wholesale market rates at the date
annual report 2009 27
the agreement was cancelled. He also noted that the breakage fee does not include any profit for the
Provider as it represents a real cost to the Provider which has entered into commitments to fund the
particular rate provided in the fixed rate agreement. The Provider must continue the commitment
regardless of whether the customer remains on the rate or opts to break out. As such there was no
room for negotiation on the costs involved as to reduce the breakage fee would result in an immediate
and ongoing loss for the Provider. Whilst the Ombudsman recognised that the breakage fee
represented a significant portion of the overall redemption figure and made it difficult for customers
to switch to much cheaper variable mortgages, the complaints were not upheld where the breakage fee
nonetheless was properly calculated.
However, the Ombudsman did uphold some complaints and published three case studies in
December 2009 where:
• Mortgage rate was to remain at original tracker rate at end of fixed rate period due to the
terms of the contract;
• No breakage fee was to be charged on exit from a fixed rate mortgage due to commitments
given over the phone;
• ¤7,000 award where the breakage fee conditions were not clearly stated.
Fixed Rate Mortgages breakage fees
The Ombudsman received a significant number of complaints in mid 2009 about the size of the
breakage fee where a person wanted to switch from a fixed rate to a variable or other rate mortgage.
In some instances the amounts varied between ¤20,000 and ¤45,000 where only six months of a
mortgage had elapsed. In deciding on each case the Ombudsman considered whether the fee and how
it was made up were disclosed to the customer when the mortgage was taken out. He also considered
whether the fee was properly charged in line with the terms and conditions of the contract and
whether the fee was calculated correctly.
Each complaint was considered on its merits and many were not upheld as the fee was calculated
correctly and in line with contractual provisions. In deciding on the cases the Ombudsman stated that
the cost of breaking the fixed rate agreement is determined by the wholesale market rates at the date
annual report 2009 27
the agreement was cancelled. He also noted that the breakage fee does not include any profit for the
Provider as it represents a real cost to the Provider which has entered into commitments to fund the
particular rate provided in the fixed rate agreement. The Provider must continue the commitment
regardless of whether the customer remains on the rate or opts to break out. As such there was no
room for negotiation on the costs involved as to reduce the breakage fee would result in an immediate
and ongoing loss for the Provider. Whilst the Ombudsman recognised that the breakage fee
represented a significant portion of the overall redemption figure and made it difficult for customers
to switch to much cheaper variable mortgages, the complaints were not upheld where the breakage fee
nonetheless was properly calculated.
However, the Ombudsman did uphold some complaints and published three case studies in
December 2009 where:
• Mortgage rate was to remain at original tracker rate at end of fixed rate period due to the
terms of the contract;
• No breakage fee was to be charged on exit from a fixed rate mortgage due to commitments
given over the phone;
• ¤7,000 award where the breakage fee conditions were not clearly stated.